Investtech and Crowdsourcing Best Ideas: Investment Strategies for a Low-Yield Environment

Abstract

Asset owners have to deal with the challenge of a potentially low-yielding investment environment for the foreseeable future. The traditional approach to raise the expected return typically leads to increasing allocations to illiquid assets such as private equity, real estate, or infrastructure. However, that method is not suitable to all asset owners. This paper provides a different and complementary approach: leveraging an asset owner’s unique position as a gateway to best ideas and non-traditional, diverse data sets. It demonstrates how assets owners, especially one located close to Silicon Valley, can utilize two key innovations to improve governance, risk management, and potentially expected returns: Crowdsourcing and Investment Technologies (InvestTech). Specifically, the paper shows how asset owners can leverage the best ideas and data sets of their partners (asset managers, banks, custodians, and research firms), and then convert these best ideas into implementable investment decisions. In this specific application, we examine how a limited form of “crowdsourcing” and InvestTech allowed the Office of the Chief Investment Officer of the Regents of the University of California (UC Investments) to develop its own internal investment model to manage asset allocations. In doing so, the portfolio and risks are better managed by the investment team. This approach is easily replicable by other asset owners, and each fund can develop its own bespoke approach based on relationships with vendors and key risks and objectives.